Mike Tuffrey

COP 21: The road to hell?

December 16, 2015

The climate agreement in Paris is being hailed as a triumph, says Mike Tuffrey. But is it really, and what does it mean for business?

Getting the governments of nearly 200 countries to agree to any one thing is no mean feat. And the climate talks weren’t just ‘anything’. That’s why expectations were low in the run up to COP 21 in Paris.

In the event, the final agreement is at the upper end of expectations. More than 180 countries have committed to cut emissions significantly. They’ve agreed to a five year review or ratchet mechanism for further commitments in future. Their long term goal is for global warming to stay “well below” the threshold of two degrees Celsius above pre-industrial times, so as to prevent run-away climate change. Surprisingly, a 1.5 degree aspiration (“endeavour to limit”) is also included.

There’s increased money pledged for poorer countries to help with the transition towards low carbon and in adapting to climate change impacts. And there’s a lot more on the technical rules about auditing, accounting and reporting what countries are actually doing.

Another plus is the unprecedented support from big business. In the run-up, the We Mean Business coalition got companies and investors to recognise that sustainable economic growth and prosperity depends on the transition to a low carbon economy. Over 500 did so. Some went further, with the Science Based Targets Initiative signing up over 110 of the biggest names to set their own commitments to reductions based on the two degree threshold.

So far, so good, then – the road to a hellish future of run-away climate change averted?

Sadly, no. Paris has two pretty fundamental flaws. First, the national commitments don’t add up to a two degree limit, never mind 1.5 degrees. Estimates vary at between 3 and 4 degrees. Second, even if they did, the mechanisms to deliver the reductions are not binding (although reporting is).

So this isn’t the end of the story, nor even the beginning of the end; more like the end of the beginning, with a lot more work to do.

What are the implications of all this for business?

Companies like certainty for their forward investment decisions, and this provides a lot more than previously. Indeed the very gap between declared intention and current commitment means governments will have to do more, whether through regulation or taxation. Business can now count on that. One way is to use an internal price of carbon for decision-making, as many have started to do, according to the latest CDP survey.

Some sectors are now clearly bad bets except in the short term – think coal – and some are now much better bets – think low carbon products and services. Expect investment trends to accelerate quite rapidly.

It also means greater pressure on companies to set meaningful targets – linked to the agreed world goals – and to report on their progress.